Engineering Services NAICS 541330

Jan 21, 2026 - Construction Sector Faces Labor Crunch

• The construction industry will need to attract 349,000 new workers in 2026 and 456,000 in 2027, a shortage that could significantly influence demand for engineering services as firms struggle to keep projects on schedule and manage increasingly complex work. Associated Builders and Contractors said modest spending growth, an aging workforce, immigration enforcement, and rising material costs are tightening labor conditions, with retirements driving much of next year’s hiring needs. Demand is especially acute in sectors requiring precision skills, such as data centers and semiconductor facilities, where engineering-intensive projects depend on reliable labor pipelines. Persistent shortages may force owners to delay or redesign projects, increasing reliance on engineers for automation planning and productivity improvements. ABC leaders urged policymakers to expand visa programs, invest in workforce development, and stabilize trade policy to prevent labor constraints from slowing infrastructure and industrial growth.
• A federal court ruling blocking the U.S. Department of Transportation from tying transportation grants to immigration enforcement is now final after the Justice Department declined to pursue an appeal, removing a significant source of uncertainty for states preparing 2026 funding applications, according to Engineering News-Record. The decision leaves in place a nationwide injunction that struck down USDOT’s “Immigration Enforcement Condition,” finding that the agency lacked statutory authority and violated both the Administrative Procedure Act and the Constitution’s Spending Clause. Attorneys general who led the multistate challenge said the outcome confirms that federal transportation dollars cannot be used to pressure states into adopting immigration policies. The ruling applies to hundreds of billions of dollars in formula and discretionary grants. It ensures that agencies can advance capital projects without fear that unrelated immigration requirements could delay or jeopardize funding.

• Construction in 2026 will continue to rely on a narrow set of strong sectors, with data centers and public infrastructure driving most activity as broader building slows, according to several industry insiders who spoke to Construction Dive. Material costs are expected to rise a modest 2% to 4%, though tariffs and labor shortages will keep pressure on budgets. The data center boom remains robust, but power constraints, land scarcity, and limited skilled labor could temper new projects. Infrastructure work should stay solid thanks to existing federal funding. However, delays in reauthorizing the Infrastructure Investment and Jobs Act or expiring clean energy incentives could tighten margins later in the year. Manufacturing construction will remain elevated due to ongoing megaprojects, even as EV-related investment cools. Lower interest rates may gradually revive residential, commercial, and private industrial projects, but improvements will unfold slowly as financing conditions ease.
• The Associated Builders and Contractors (ABC) Construction Backlog Indicator rose 0.1 months to 8.4 months in December 2025 compared to November. The infrastructure backlog decreased by 0.9 months to 9.1 months in December, compared with the previous month, and the heavy industrial backlog decreased by 1.8 months to 6.7 months over the same period. November’s commercial and institutional construction backlog rose 0.2 months to 8.4 months compared to November. The ABC’s Construction Confidence Index for sales rose to 62.9 in December from 59.8 in November. A Confidence Index sales reading of 50 or more indicates most contractors are optimistic about sales. ABC Chief Economist Anirban Basu said 2025 backlogs were down sharply for small contractors, who are less likely to work in the booming data center sector. Contractors with data center work had backlogs of 11 months in December, while those with no data center work had backlogs of just 7.8 months.